Time to Take a Close Look at How Federal Policies Affect States

October 02, 2017

by
Ingrid Schroeder

In May, House Speaker Paul Ryan and Minority Leader Nancy Pelosi announced the creation of the Speaker’s Task Force on Intergovernmental Affairs, “a bipartisan group of lawmakers focused on balancing the interests of federal, state, tribal, and local governments.” The announcement didn’t get much attention amid the steady stream of news coming out of Washington, but it could have implications for the effectiveness of government in the United States.

The federal and state governments play key roles in shaping nearly every area of domestic policy, from health care to education to transportation. But despite the intertwined nature of federal and state policymaking, few institutions facilitate interaction and consultation among decision-makers across the two levels of government. The creation of this task force is a step in the right direction toward expanding intergovernmental dialogue.

One area the task force might help to highlight is the strong connection between federal and state finances. Nearly $1 of every $3 in state revenue in 2015 came from federal grants, according to the latest available data. In addition, state tax codes are often linked to policies in the federal code such as deductions, income exclusions, and credits, so any changes to the federal code can affect state tax policies and increase or decrease state revenue.

Consequently, the current debates in Washington focusing on the federal budget and health care reform, among other areas, could have implications far beyond the Beltway, increasing the need for decision-makers at all levels to understand these federal-state linkages. As a recent analysis from The Pew Charitable Trusts highlights, of the more than $145 billion in total discretionary federal grants provided in fiscal year 2016, at least 9.1 percent was proposed for elimination in the fiscal 2018 budget blueprint released by President Donald Trump in March. Most of the funding recommended for elimination is associated with grants to state and local governments.

In addition, Pew noted that some federal tax reform proposals include changes to the standard deduction and personal exemption, which could affect not only federal revenue but also revenue in states that incorporate these provisions into their tax calculations—potentially changing the federal and state taxes paid by individual filers.

Unfortunately, the increasing need to understand the evolving relationship between the federal and state governments coincides with a reduced capacity to do so. Government institutions that once reviewed federal-state issues have been disbanded or given other priorities. For example, the Advisory Commission on Intergovernmental Relations, along with units that focused on intergovernmental relations in the Office of Management and Budget and the Government Accountability Office, ended in the 1980s and 1990s. The House and Senate intergovernmental relations subcommittees have been given other substantial responsibilities. And in 2012, the Census Bureau decided to discontinue publishing a significant source of data for federal-state fiscal information.

The decline in national capacity for data-gathering and analysis makes it more difficult for policymakers to take into account the full impact of federal decisions on the American people, not just the fiscal impact on a particular level of government. When decisions are made without adequate data and discussion, there is a significant risk that the problem being addressed will go unsolved—or simply passed on to other levels of government.

The House’s new task force represents a new opportunity to begin to address this risk. Its mission calls for federal policymakers to create partnerships that consider the interests of all levels of government and to provide a forum for state and local governments to showcase their responses to pressing policy challenges.

The task force is still in its infancy, and it remains to be seen how active and successful the effort will be in promoting cooperative governance. But the initiative deserves a close look as policymakers and the public strive to understand how the wave of proposed policy changes circulating in Washington might play out across the country.

Ingrid Schroeder directs Pew’s fiscal federalism initiative. A version of this article originally appeared online in The Hill on July 25, 2017.